Life can get pretty messy. Personal debt comes in a number of shapes and if you’re anything like the average consumer you’ve probably racked up a sizable amount from a number of different lenders.
Paying and managing different types of credit can get overwhelming. But there’s a nifty solution to this issue – debt consolidation.
Debt consolidation means putting all your borrowings together to make them easier to manage. All you have to do is take one big loan to pay off all the little ones. Here are some of the advantages of this process:
Perhaps the best reason for consolidating your debt is reducing the interest rate on your borrowings. For consumer debt, all the different loans and outstanding credits have different rates of interest. If you add up the total amount you pay a year to service the exact amount of money you’ve borrowed, you’ll see you’re paying a pretty high interest rate overall. Bringing it all together under one loan is likely to bring the effective rate of interest down. That means you will have more money left over at the end of every month.
The interest rate isn’t the only problem with consumer debt. Monthly payments for different loans can get lumpy. This could leave you with excess cash in some months and barely anything left in others. By consolidating the debt and extending the term of the loan you can pay a lower amount every month. This will stabilize your cash flows and help you manage monthly expenses better. Remember, consolidation doesn’t reduce the amount you owe, it simply stretches the interest payments out over a longer duration.
Paying off your debt together and not borrowing any more is seen as a positive by credit rating agencies. There’s a good chance debt consolidation will help you improve your credit score. Check your credit report and ask an expert to help you pick the best way to consolidate credit card debt and other outstanding loans.
The most obvious benefit of debt consolidation is the way it lets you take control of your financial situation. By focusing on one big loan instead of many small ones you can manage your money better and perhaps pay off the loan earlier than expected. It’s less stressful managing bills and interest rates when you only have to deal with one firm.
Lenders who offer a debt consolidation scheme check your credit history before making an offer. If your debt is manageable and your credit risk is low, they’ll offer you a great deal. Take the time to understand the amount of money you’ve borrowed over the years and the amount of time you’re willing to wait to pay it all back. For most borrowers a debt consolidation is a good alternative.